AI’s rapid progress still short of transformative breakthrough, says Morgan Stanley

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J Studios

AI is advancing at a rapid pace, but the leap to truly transformative intelligence is still uncertain, Morgan Stanley said.

Analysts, led by Seth Carpenter, said that while the current generative models are expanding fast, the kind of breakthrough that would allow machines to match and improve on human intelligence—truly “transformative AI”—is still a distant goal.

"But even falling short of truly transformative AI, productivity almost surely will rise, and the labor market implications will come to the fore. Despite widespread fears, we do not see a high probability of near-term mass unemployment from AI adoption," Carpenter said.

Carpenter noted that the history of technological advances shows that the outcome tends to be more output with available labor.

"Similarly, the argument that a surge in productivity would imply meaningfully lower inflation forever is also too simplistic. At the very least, both fiscal and monetary policy can and likely will play a role, stimulating aggregate demand to take up the slack, and ultimately inflation is the result of where monetary policy leaves it," Carpenter said.

Equities are also expected to benefit from a surge in productivity. Carpenter believes that a rise in productivity will lead to higher returns on capital in equity markets; however, there will always be winners and losers.

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